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Stealthy Inflation

Market Updates | February 2, 2021

“No Taxation Without Representation.” This slogan was popularized by the American colonies during the revolution to protest the British parliament that was levying taxes on them without their consent or approval. The colonies were enraged that the British government was levying taxes without their input and without representation. In turn, it was one of the primary reasons for the havoc of the revolution, and of course, the Boston Tea Party. 

Milton Friedman, an American economist—and best known for receiving the 1976 Nobel Memorial Prize in Economic Sciences—coined the term, “Inflation is taxation without representation.” Think about the quote and ask yourself, “What does it mean for us today?” Are we currently experiencing inflation or deflation? Are we facing more taxation or less taxation? Are we, the public, being consulted on taxation, or are we without representation when it comes to taxation? 

I believe Friedman nailed it with “inflation is taxation without representation.” I am sure that we can all agree that all levels of government—federal, provincial, and municipal—are guilty of this. Taxes that come to mind are income taxes, property taxes, GST, and PST. Real estate has its own series of taxes: property transfer taxes, empty home taxes, foreign buyer taxes, and so on. 

I could spend some considerable ink on whether or not we as Canadians truly have representation when many of these taxes were written into the tax code. However, I want to share my thoughts on how taxation, regulation, and compliance are the cause of inflation. 

I was recently looking at buying a new TV the other day. I was struck by how inexpensive TVs are nowadays. Searching online, I found a 65” TV that I could buy and have delivered the same day for $449! Wow, that is cheap! I remember shopping in the store—not online—for a 42+” TV a decade or so ago, and they were in the $3000-5000 range. This then got me thinking about inflation, deflation, taxes, and why some things seem to be getting cheaper, while other things continue to get more expensive on a daily basis. 

The Canadian CPI, otherwise known as the Consumer Price Index, uses 8 major groups to evaluate the rate of inflation. Think about your household expenses over the last few years, and then look at these groups. I think you will agree with me that all of these groups have affected your wallet in a significant way with higher costs year after year; the exception being apparel and some forms of recreation. What is the common denominator with these two groups and the TV? Apparel, recreation, TVs, and anything that is not regulated and needs to follow compliance rules set by a Government body, is actually cheaper or in a deflationary trend.       

On the other side, housing, transportation, food, groceries, medical, many services we use, and education are all heavily regulated causing a stealth type of inflation: inflation caused by government regulation.

Real estate is a great example of Friedman’s quote: “Inflation is taxation without representation.” Many of you may be thinking that real estate appreciation or inflation is the cause and effect of supply and demand. This is certainly one of the main reasons for appreciation and/or inflation in the market; however, after diving deeper and looking at the hidden costs in developing property, government fees, engineering, environmental, consultants approvals, and finally, building the home, the consumer or buyer is innocently caught in stealth inflation. In looking at most of these fees—which in most cases, we could argue are a version of taxes—they were incorporated often without representation. 

Here is a great article written by Jesse Ferreras of Global News: https://globalnews.ca/news/4208533/vancouver-detached-home-building-costs/. The article highlights that a single-family home in Vancouver costs $644,000 in stealth inflation or development taxes/fees versus a similar home in Calgary at only $155,000. The difference is provincial, city, and municipal government fees to develop and build.

Next time you see the real estate market appreciation numbers, remember, it is not solely based on location, supply, demand, and condition. A great deal of the appreciation or inflation is really stealth inflation brought on by regulation, policies, and compliance. Moreover, in most cases, we need to look no further than Friedman’s quote: “Inflation is taxation without representation.” 

Looking at the appreciation in the Vancouver and Fraser Valley real estate market’s it appears it was more than the stealth taxes that were at play. The Fraser Valley had considerable gains, especially in the single-family market when comparing the two regions over the last 12 months. The COVID-trend of people moving to wide-open spaces certainly pushed the appreciation meter higher in the Fraser Valley. Look at the comparison in regard to the average and median prices values:

Average Price                        Fraser Valley                                         Vancouver

Single-Family                             17.8%                                                       6.3%

Townhome                                 8.2%                                                         2.5%

Condominium                            6.1%                                                         .6%

Median Price                         Fraser Valley                                         Vancouver

Single-Family                             16%                                                           5.7%

Townhome                                 7.9%                                                         4.6%

Condominium                            6.6%                                                         .6%

 

Please reach out to our team for more information or help with all your real estate needs.

Click Below To See The Fraser Valley Stats:

Fraser Valley STR Stats

Click Below To See The Vancouver Stats:

Vancouver STR Stats

STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales

 

Randy Dyck
Personal Real Estate Corporation
604-807-4366 or randy@eximus.com